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Medicaid Costs Growing More Slowly Than Private Insurance

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Medicaid costs per beneficiary grew much more slowly over the past decade than costs for employer-sponsored insurance or across the health care system as a whole, according to a new Urban Institute study conducted for the Kaiser Family Foundation. It’s just the latest evidence that contradicts the false – though oft-repeated – claim that Medicaid costs are growing out of control and, as a result, policymakers should convert Medicaid into a block grant.

Between 2000 and 2009, Medicaid costs per beneficiary rose by an average of 4.6 percent a year, the study found, while premiums for employer-sponsored insurance rose by an average of 7.7 percent (see graph). National health expenditures per capita, which include spending on private insurance as well as on public programs like Medicaid and Medicare, rose by an average of 5.9 percent.

The Urban Institute researchers attribute Medicaid’s better performance to “an aggressive set of cost containment policies” such as expanding the use of managed care, instituting efficiencies in rates for health care providers, limiting pharmaceutical costs, and providing long-term services and support to people in the community rather than in more costly nursing homes.

We previously explained that the exaggerated claims about Medicaid spending don’t hold up under scrutiny. Over the past 30 years, for example, Medicaid cost growth per beneficiary has essentially tracked growth in health-care costs systemwide.

Moreover, Medicaid actually costs less per beneficiary than private insurance to cover people with similar health status. While Medicaid provides more comprehensive benefits than private insurance and charges beneficiaries significantly lower out-of-pocket costs, its lower payment rates to providers and lower administrative costs help make Medicaid very efficient.